United States

United States

Low power prices hurt operators of wind plant

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A decline in the price of natural gas is hurting the operators of merchant wind plants that sell their output directly into the wholesale market rather than through long-term power purchase agreements (PPA), according to Edward Zaelke of law firm Chadbourne & Parke, which serves the wind industry. Electricity prices have dropped on the spot market as a result of cheaper gas, which has gone from a high of $13/million Btu (MMBtu) last year to an average around $6/MMBtu, says Zaelke. The knock-on effect on electricity prices has been particularly acute in geographic areas with little coal or nuclear power generation, leading to a high reliance on natural gas, he adds. In Texas, the average 2005 market price for electricity was over $100/MWh but by the beginning of 2009 fell below $40/MWh. Another steep drop was in the Northeast, where prices plunged from $200/MWh before the global recession and now also hover around $40/MWh. Fewer than 15% of all US wind projects operate without PPAs, but Zaelke says older wind plant -- particularly those without a third-party hedge against price risk -- will feel the crunch as low power prices and high maintenance costs may force operators to abandon turbines. Douglas Levitt of CalWind, which operates two older wind plant in California's Tehachapi Pass, is undisturbed. "We've been doing this a long time and we've seen the bottom cycle of three and a half cents per kilowatt hour," he says. Noting that generation from the 32 MW of wind plant he operates without PPAs is fetching about $60/MWh, he adds: "This little dip we're seeing now is only off the highs of 2008. It's really an average price over what we've seen for the last twenty years."

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